Chinese Investment in Central Asia: With or Without the SCO?

By Jack Fenwick

The Shanghai Cooperation Organization Summit in Kyrgyzstan during 2013. Source: Wikimedia via, used under a creative commons license.

The Shanghai Cooperation Organization Summit in Kyrgyzstan during 2013. Source: Wikimedia via, used under a creative commons license.

The 14th annual Shanghai Cooperation Organization (SCO) summit came to a close in Dushanbe, Tajikistan on September 12 with a prominent political agreement in tow: India and Pakistan are expected to be inaugurated into the ranks of SCO member states, significantly expanding the geographic reach and political diversity of the organization. In line with previous summits, regional security and Afghanistan’s adjustment to NATO’s withdrawal also attracted considerable attention this year. Of the seven resolutions signed at the meeting, however, none address the organization’s economic development. While economics have become a fundamental feature of China’s diplomacy in Central Asia, it is less clear that the SCO holds consequence for China’s economic forays there.

In isolation, a lack of economic focus at this year’s summit is not so significant, particularly in light of pressing political and security concerns. But the results of this summit play into a well-established trend — multilateral economic cooperation in the SCO is perpetually sidelined. The story of economic development in the organization has instead become one of Chinese investments and bilateral overtures. Yet, for Beijing, this may not necessarily have been by design. Appeals for economic multilateralism have echoed for years within Chinese borders, but not far beyond.

As evidenced by China’s floatation of a new $5 billion loan to SCO member states, there was not a complete void of economic discussion at the 2014 summit. Nevertheless, Beijing appears to be the only SCO member beating loudly on the economic drum. Chinese entreaties have now produced a decade-long lineage. In 2003, then Chinese premier Wen Jiabao proposed a goal to “gradually set up a free trade zone” between SCO member states. In 2005 and 2006, respectively, China spearheaded an effort to establish the Interbank Consortium and SCO Business Council and in late 2010 China pledged $8 billion to set up an SCO Development Bank. In addition, China has frequently granted preferential loans to SCO member states, delivering $10 billion in both 2009 and 2012.

Despite the fact that China has continually endorsed the free trade zone and SCO Development Bank, the two endeavors have yet to bear fruit. A benchmark of 2020 has been set for the free flow of goods, but Russia will need to be on board to make it happen and this seems unlikely given the country’s analogous goals in the Eurasian Economic Union (EEU). The SCO Development Bank is more promising, but it is hard to imagine that it would serve as more than an auxiliary venue of Chinese investment in the region, especially given that China would be investing the lion’s share to get it up and running.

Economic coordination figures prominently in the 2001 SCO Charter, but after a decade and a half the Central Asian region remains the world’s least economically integrated. Whether or not China would truly like to see this change is uncertain. The rhetoric coming out of China, though, certainly hints at frustration with the present situation. Nonetheless, it would be a stretch to say that Chinese goals in the region have been seriously curtailed by a lack of economic multilateralism in the SCO. China is already the leading trading partner of four of the five Central Asian countries, and only slightly trails Russia in Uzbekistan. More conspicuously, China’s massive energy investments in the region do not typically involve the SCO, as they are negotiated bilaterally and typically outside of SCO meetings. A pipeline deal with Turkmenistan, neither a member nor observer of the SCO, further undercuts the notion that the SCO is an influential economic organ. This is not to say the SCO is not a helpful coordinating venue; rather, these economic forays can be accomplished just as well without it.

In the end, while economic cooperation was intended to be a central pillar of SCO development, what we have seen instead is simply a growth of Chinese economic overtures and an inertia of wider multilateral economic cooperation. Among a multitude of debilitating obstacles are Russian concerns of Chinese dominance, political mistrust amongst Central Asian neighbors, and slow decision-making in the SCO. In the midst of this multilateral stagnation, Chinese economic advances in the region through bilateral mechanisms will continue at a steady pace, but the SCO can be expected to remain largely inconsequential as an economic forum.

Mr. Jack Fenwick is a researcher with the Freeman Chair in China Studies at CSIS.


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